Family Formation & Housing

For young couples starting families, buying their first home and/or other real estate. Covers mortgages, credit cards, interest rates, children’s education savings plans, joint accounts for couples and the like.

Affordable Housing: Is it worth it to “Drive until you Qualify”?

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DCIM100MEDIADJI_0412.JPGBy Penelope Graham, Zoocasa

Special to the Financial Independence Hub

It’s an affordable housing conundrum for many downtown city dwellers: is it worth it to trade the convenience of urban living for suburban sprawl? As Toronto real estate prices continue their ascent, the only affordable way to own a detached house seems to be packing up and moving beyond city borders.

Hence the term “drive until you qualify”: the practice of moving far away to a region where real estate is still affordable. Doing so often means assuming a long daily commute to and from a bedroom community to an urban business hub – and the need to drive to the nearest corner store just to pick up some milk.

An Urban Exodus

But logging more time behind the wheel doesn’t seem to be deterring buyers in the GTA; according to recent numbers, they’re heading to the burbs in droves.

Sales are soaring in the municipalities surrounding Toronto – 3,586 houses sold in the 905 region in August, up 24% from the previous year, according to the Toronto Real Estate Board (TREB). Townhouses are also in high demand, with 1,154 units sold. By contrast, a scant 863 houses and 357 townhomes sold within Toronto proper.

Condos were the only housing type that remained stronger in the city than on the outskirts: 1964 compared to 822 in the 905.

But is moving out of the city always an affordable decision for those looking to upgrade their real estate, or accommodate their growing families? There are a number of areas to consider.

You Won’t Escape the Bidding War

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Stop believing real estate has magical investment powers

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Beautiful view of Vancouver, British Columbia, Canada
Expensive Vancouver, BC

By Steve Lowrie, Lowrie Financial

Special to the Financial Independence Hub

If you found yourself on the high seas, and the captain and crew were battening down the hatches, what would you do? Depending on how fast they were scrambling, you might at least make sure your life preserver was within reach.

If the Canadian real estate market were an ocean liner, recent government words and deeds have sent some pretty solid warning shots across the bow – especially for properties in the Greater Toronto and Vancouver regions. Real estate investors who may have forgotten the essential rules of self-preservation would be wise to consider the following:

In a June announcement, Bank of Canada Governor Stephen Poloz warned: “The pace of house price increases in Toronto, and especially Vancouver, is unlikely to be sustained, given the underlying fundamentals.”

Several provincial governments have been looking for ways to manage their real estate markets. For example, this July Globe and Mail article noted that British Columbia was trying to “cool the Vancouver market” by adding a 15 per cent transfer tax on property purchases made by international buyers. Continue Reading…

Make the Family Cottage less Taxing this year

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Cottage On The Carpenter Lake, Canada

By Fraser Willson

Special to the Financial Independence Hub

As the days of summer dwindle to a precious few, the last few weekends at the family seem especially poignant now. And while those thoughts may warm you up a bit, you don’t want to be left out in the cold if you’re not aware of the financial implications when you sell the family retreat or if you transfer ownership to your children this year.

Unlike with your home, transferring ownership of the family cottage to anyone other than your spouse may trigger a taxable capital gain on the appreciation in value during your ownership. You may want to consider leaving the property to your spouse. Doing this helps defer the tax bill until the property is sold or passed on to future generations.

In addition, there are a number of strategies that you can undertake to help reduce and potentially avoid the capital gains tax, including:

Selling and taking back a mortgage

If you decide to sell the cottage to your children, consider taking back a mortgage by offering your children a mortgage loan as payment for the purchase price. The capital gain can be spread over a period of up to five years. And you can forgive the mortgage in your will so your children will own the cottage without debt or paying taxes.

Transferring ownership while you’re alive

Transferring ownership of the cottage to a trust that designates your children as beneficiaries will trigger an immediate capital gain. But from that point on, your heirs are responsible for taxable gains. They won’t pay those taxes until they sell the property or transfer ownership.

Declaring the cottage as your principal residence

You can have only one principal residence for tax purposes. So if your cottage has gone up in value more than your home, consider designating the cottage as your principal residence, which isn’t subject to capital gains tax.

Buying life insurance

Family members can use the tax-free proceeds from a life insurance policy to help pay capital gains taxes on your cottage when you leave it as part of your estate.

If you plan to sell or transfer ownership of your family cottage this year, make sure your finances align with your goals. Doing so can help ensure you stay on track to reach them.

Continue Reading…

What is Mortgage Insurance?

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mortgage-insurance-cartoon
Cartoon courtesy of LSM Insurance

By Chantal Marr, LSM Insurance

Special to the Financial Independence Hub

Sounds great just lying there on paper, doesn’t it?

Really solid.

The underlying concept of mortgage insurance is that if you die or are incapacitated mortgage insurance will pay off the rest of your mortgage. But be careful: Mortgage Insurance is the most dangerous financial product out there.

Mortgage insurance is the one financial product that declines in value as you continue to pay. Therefore each year you are getting less and less value for your premium.

Why Math is Important

Renting vs. Owning

Let’s start with your house. When you take a mortgage out on your house, it’s a very bad deal to start with. You are just paying interest on the value of the house and in most cases the interest far exceeds the cost of renting the same property.

Here’s an example based on a $500,000 20-year mortgage at 6% on a $600,000 house. We’ll assume rent inflation of 4%/year:

Year 2010: Mortgage payment $3,560/month. Rent: $2,500.

You are leaving over $1,000 in your pocket per month in ready money. That’s a lot of restaurants and vacations twelve months a year.

But let’s take it ten years later: Continue Reading…

Review: How NOT to Move Back in with Your Parents

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51UopHxeZ+L._SX331_BO1,204,203,200_You’re a millennial. You’ve recently graduated from university and are beginning your career. You aren’t making quite as much as you’d hoped for, and as it turns out, rent is crushingly expensive.

Okay, you’ll just put off moving out for six months, save some money, live at home. Everyone’s doing it these days. You’re sure that before you know it you’ll be on track to success, living it up in homeowner-ville, sitting pretty. You’re not quite sure exactly how you’ll get to homeowner-ville, but it can’t be that hard, right?

If any of this sounds plausible, I would seriously consider reading this wonderful book called How Not to Move Back in With Your Parents – The Young Person’s Guide to Financial Empowerment by Globe and Mail personal finance columnist Rob Carrick. I don’t want to be dramatic and say it will be your new finance bible, but it’s definitely a book you’re going to be referencing time and time again throughout those first few post-graduate years.

Something I really love about this book is that it’s broken down into great detail. Not only that, but it’s organized according to when in life you should be needing the advice.

Covering all the financial bases

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